Olympics in Crisis

March 12, 2018

In his 1986 book, Olympic scholar John Hoberman of the University of Texas at Austin wrote, “The Olympic crisis is permanent.” Hoberman’s work, The Olympic Crisis, focused on the political and ideological roots of the particular predicament that had followed successive superpower-led boycotts of the 1980 and 1984 Summer Olympic Games. But his underlying thesis—that crises of various forms have always beset the Olympic movement—has proven strikingly accurate over the ensuing years, never more so than now.

The latest crises include current and former International Olympic Committee (IOC) members once again being charged with corruption of the bidding process involved in selecting host cities for the Olympic Games: behavior that first came to light in 1999 with revelations about bribes-for-votes in the awarding of the 2002 Winter Games to Salt Lake City. Other problems involve a massive, unresolved scandal centered on allegations of systematic, state-sponsored doping of Russian athletes (McLaren Report, July 18, 2016) and ballooning costs to host the Games, discouraging cities in Western democracies from bidding.

These subjects have dominated Olympic conversation in the months leading up to the February 2018 Winter Olympic Games in Pyeongchang, South Korea. The related question of which Russian athletes will be able to compete in South Korea also hangs over the upcoming Games; whatever decision the IOC reaches is certain to create dissatisfaction.

This predicament is surprising, given that the past 37 years have seen the IOC go from near bankruptcy to having billions in assets. Only recently, cities had fallen over themselves to enter what economist Andrew Zimbalist describes in his book Rio 2016—Olympic Myths, Hard Realities as an auction by an unregulated global monopoly, in which the IOC is the only guaranteed winner. Now cities are rushing to the exits after having discussed bidding and even after having submitted bids.

“The brutal truth for the IOC is that fewer and fewer cities are game to host the Olympics Games,” said Jules Boykoff, Chair of the Department of Politics and Government at Pacific University in Oregon, who has written extensively about the Olympics. “This shift has emerged from a confluence of factors: ever-escalating five-ring (Olympic) costs, plucky activist groups that have challenged the Olympics, the rise of referenda as a way of gauging citizen support or lack thereof, the IOC’s reputation for corruption, and a burgeoning core of critical academics and journalists who have raised big, evidence-driven questions about the Games.”

The IOC’s posture on these problems has been mainly defensive: reactive rather than proactive. Current IOC President Thomas Bach has dismissed criticisms of the IOC, especially those about disinterest in bidding, saying in November that they reflect widespread “mistrust [of] the establishment, and [the IOC is] considered to be part of this establishment.” The IOC now faces a crisis of confidence as great as any other in its history, despite that its financial situation seems secure for years to come, thanks in significant measure to NBC’s purchase of US broadcast rights to the Olympics from 2014 through 2032 for US$12.13 billion.

At the same time, even as the telecasts remain profitable for NBC, interest in the Olympics among its US audience keeps diminishing. Ad Age reported that the “Total Delivery Audience” dropped 15 percent from London 2012 to Rio 2016, despite a favorable time zone in Brazil, and that the latter had the oldest-skewing demographic for an Olympics since 1960. Time zone issues are likely to have a deleterious effect on US ratings for the upcoming three Olympic Games in Asia.

“I think NBC is committed long-term to the Olympics no matter the ratings for the next three,” said Richard Deitsch, media writer for Sports Illustrated. “Historically, NBC has ridden out all the negatives when it comes to the event, from drug cheats to geopolitical issues.”

All the negatives—how has it come to that?

Rags to Riches with a New Economic Model

In 1980, the IOC was a struggling mom-and-pop operation. It had a staff of barely 20 at its headquarters in Lausanne, Switzerland, and assets of just US$2 million, with only US$200,000 in cash reserves, according to longtime Olympic journalist David Miller’s book, Olympic Revolution. The IOC’s main source of revenue, then as now, came from selling TV rights to a property, the Olympic Games, whose summer incarnation had, by 1984, been blighted for almost two decades. Among its problems were the Mexican government’s deadly crackdown on protesters before Mexico City 1968, the murder of Israeli coaches and athletes at Munich 1972, the enormous debt and African nations’ boycott of Montreal 1976, and the tit-for-tat Cold War boycotts of Moscow 1980 and Los Angeles 1984.

Los Angeles was the only legitimate bidder when the 1984 Summer Games were awarded in 1978. Only Seoul, South Korea, and Nagoya, Japan, contested the 1981 election for the 1988 Summer Games. The Olympics would, then as now, face challenges so enormous that their future was perilous because many cities no longer wanted to assume responsibility for any financial losses—as the IOC contract with host cities demands—incurred by hosting an event with ever more athletes and competitions.

The 1984 Los Angeles Games changed everything. Forced to accept the city’s proposal not to bear financial responsibility for any debt because of the lack of other host options, the IOC saw LA ’84 organizing committee chief Peter Ueberroth create a new economic model for the Games, in which private enterprise covered all operating costs other than those for policing and security. The result was a surplus of US$215 million on operating expenses of US$413 million. This spurred the IOC to begin a new global sponsorship program called TOP in 1985, which would bring in US$1.003 billion over the 2013-16 Olympic cycle (TOP revenue increases have slowed from 30.6 percent between the cycles ending in 2004 and 2008 to 9.7 and 5.6 percent for the two ensuing cycles, although a substantial increase seems likely for the cycle ending in 2020).

By 1986, there were 13 bidders for the 1992 Summer and Winter Games (six for the former and seven for the latter)—the last time both editions would take place in the same year. Interest reached an apogee when nine cities bid for the 2012 Summer Games, allowing the IOC to select five major world cities—Moscow, New York, Madrid, Paris, and London—as finalists in a 2005 election won by London. Along with the interest from host cities came increased sponsorship and TV rights revenues that fattened IOC coffers. The IOC’s 2016 annual report showed total assets of US$3.28 billion, as well as US$2.073 billion in assets over liabilities. To those will soon be added the new US$200 million headquarters in Lausanne, where the IOC now has a staff of 600, according to insidethegames.biz.

Costs Burgeon, Potential Host Pool Shrinks

Over time, though, hosting the Olympics began to be seen as a money pit. That pit became substantial at the 2004 Athens Summer Games and looked immense when the total costs of the 2008 Beijing Summer Olympics and the 2014 Sochi Winter Olympics were reported to be US$40 billion and US$51 billion, respectively. According to Bloomberg News, the 2004 Athens Olympics cost an estimated US$11 billion—double the original budget—not including the billions spent on airport, road, and public transportation upgrades. That there was no coherent plan for later use of now moldering sports venues built for those Olympics has exacerbated the impression of wasteful spending of money that many taxpayers feel should go to bread before circuses.

That there was no coherent plan for later use of now moldering sports venues built for those Olympics has exacerbated the impression of wasteful spending of money that many taxpayers feel should go to bread before circuses.

The precise impact of the US$7 billion in Olympic-related taxpayer obligations on the Greek debt crisis that followed has been widely debated. A 2016 study of Olympic finances by scholars at the University of Oxford Saďd Business School said that “cost overruns and associated debt from the Athens 2004 Games weakened the Greek economy and contributed to the country’s deep financial and economic crises.”

“The IOC lost [its] psychological momentum with Athens . . . when the circus left town, [it] left the town in financial ruins,” said Rob Prazmark, president and CEO of 21 Sports & Entertainment Marketing Group, which has worked for the IOC and the US Olympic Committee (USOC). “The IOC never looks in the rear-view mirror. It’s on to the next town.”

The cost issue reached critical mass during the 2014 Sochi Winter Olympics in Russia, making the Games look financially radioactive. The fallout intensified with another debacle at the 2016 Rio Olympics, whose organizing committee chief and former IOC member (until 2013) Carlos Nuzman is among those charged in an alleged bribes-for-votes scheme to obtain those Summer Games. (He has denied wrongdoing.) At a time of extreme economic dislocation for Brazil, Rio spent an estimated US$12 billion on the Games: according to the Oxford study, its operating budget ran 51 percent over the projected US$3 billion.

Bach asserted in the March 2017 issue of the German magazine Stuttgarter Nachrichten that the IOC can’t seem to get across the message that the organizational cost of the Games is break-even at worst. This argument is based on the IOC’s contention that there are three Olympic budgets: one to stage the Games (organizational), one to build, with private or public funds, any permanent arenas deemed necessary for the Games (venues), and one for government-funded infrastructure not necessary for the Games (vanity/profiteering/urban renewal).

Christopher Dempsey, co-chair of the No Boston Olympics group, which helped derail Boston’s Summer Games bid after the USOC had selected it as the 2024 US candidate city, exposed the IOC’s accounting methods in a presentation he gave last year in 1988 Winter Games host Calgary. In a section entitled “To mask inevitable mistakes, boosters play the Olympic budget shell game,” Dempsey outlined how costs are shifted to “maintain a ‘surplus’ in the ‘Olympic’ budget.” That, as Dempsey outlined, includes making planned temporary venues permanent ones, saying it’s okay to use public funds for necessary Games-related infrastructure because the public will use it later, and identifying some organizational costs as security-related to shift them to the government-funded security budget.

London found out what that all meant when its 2012 Olympic plans included a massive regeneration of the city’s East End. This plan’s rising costs helped triple the spending from an originally projected US$5 billion to US$15 billion, even as London organizers could claim that they brought in the entire deal—organizing, venues, and renewal—under its final budget.

Some cost increases are caused by the ceaseless expansion of both the Summer and Winter Games in numbers of entered nations, athletes, and medal events. The IOC’s desire to keep peace with the international federations that govern each sport has led to an inability to say, “No more”—despite recommendations of IOC-created studies to rein in gigantism. According to statistics from the official Olympic database, olympedia.org, the last “small” Summer Games (not including those boycotted), Munich 1972, had 121 nations, 195 events, and 7,114 athletes. The 2016 Rio Olympics had 207 nations, 306 events, and 11,179 athletes. The Winter Olympics have burgeoned from 37 countries, 38 events, and 1,072 athletes in Lake Placid, New York, in 1980 to 89 countries, 98 events, and 2,747 athletes in Sochi, Russia, in 2014.

The Impact of Sochi on Future Bids

Sochi was the balance beam that broke the camel’s back. The originally announced US$12 billion budget was a laughable underestimate because the region lacked everything needed for the Winter Games. While there will never be a transparent accounting of the final cost, the reported US$51 billion rang like a tocsin in the minds of cities planning bids for the 2022 Winter Games, awarded in 2015.

“The IOC blew it when it did not get all over the US$51 billion number regarding Sochi the moment the story appeared,” said Richard Pound of Canada, the longest-serving (since 1978) of the IOC’s current 100 members. “There were several specific examples that would have explained the number—whatever the real number may have been.”

There were six bids for 2022. Four withdrew, including two that could be considered the soul of winter Olympic sport—Oslo, Norway, and Stockholm, Sweden. Stockholm said no for financial and environmental reasons; Oslo’s withdrawal was due to lack of public support. That left cities in two authoritarian countries: Almaty, Kazakhstan, and Beijing, China. Beijing won, despite severe winter air pollution, environmental issues related to relative lack of snow, and a plan that puts four sports 130 miles from the capital.

Prior to the official 2022 bid submission deadline in 2013, Swiss and German bids ended in referenda defeats. Bach, IOC president since September 2013, has written off such referenda as part of the “anti-establishment movements we have in many European countries.”

After the 2015 filing deadline for 2024 Summer Games bids, the IOC website headlined, “FIVE WORLD-CLASS CITIES IN STRONG COMPETITION FOR OLYMPIC GAMES 2024.” Eighteen months later, the withdrawals of Hamburg (by referendum), Rome (due to financial priorities), and Budapest (due to the threat of a referendum) reduced the field to Paris and Los Angeles, the latter having jumped in to help the USOC wipe the Boston egg off its face. It wasn’t long before Bach backed the idea of awarding the 2024 and 2028 Summer Games at the same time, an idea that LA bid leaders first proposed sub rosa to him, according to the LA Times. (Not since 1921 had two successive hosts been selected simultaneously.) To sell that plan to the IOC’s members, Bach framed it as fixing a process that “produces too many losers.” The deal was done once LA agreed to 2028.

That both Paris and Los Angeles stayed the course was fortunate for the IOC. Yet buying 11 years of Summer Games stability did not end the threat of a turbulent future for the IOC and the Olympics. Published projections of a four-fold budget overrun for Tokyo 2020 were frightening; even with recent cuts, the final cost is expected to be nearly twice the original US$7.7 billion. There are fears that Paris will substantially exceed its proposed US$8 billion Olympics budget, since it has to build two big-ticket items, villages for athletes and media, and a permanent aquatics center (projected cost: US$2.0 billion for both in 2024 dollars). Los Angeles’ plan includes using existing university dormitories for the villages and temporary facilities for aquatics.

The IOC would have been better served by using Los Angeles in 2024, given the significantly lower risk in its financial plans. A drumbeat of bad news about Paris could further discourage future bids, with the 2026 Winter Games first up. Referenda have already killed potential bids from Innsbruck, Austria (a two-time winter host), and St. Moritz, Switzerland. A Sion, Switzerland, bid may flounder despite a government pledge of financial support and the IOC’s assurance to Sion that there is now flexibility in the nature of the financial guarantee (but not in its underlying premise: that the host city must cover all deficits). Stockholm has refused again, so the IOC may consider another double award (2026 and 2030) to buy more time and presumably find long-term solutions for the disinterest.

Some solutions were supposed to come from Olympic Agenda 2020, the much-touted, little-followed 40-item reform package that the IOC membership rubber-stamped in December 2014. It included proposals to cut costs to bid for and stage the Olympics, calling for the maximum use of existing or temporary facilities and allowing Summer Games events to be held in more than one country rather than overburdening the host city.

“Olympic Agenda 2020 is a set of recommendations that carry very little heft. It has always been more phantom than opera,” says Boykoff.

Corruption Charges Deepen Crisis

New bribes-for-votes charges have undermined the IOC’s reputation. They involve current IOC member and Olympic medalist Frankie Fredericks of Namibia, who was suspended by the IOC in November after French prosecutors charged him, and Nuzman, who was suspended as an honorary IOC member after being arrested and charged by Brazilian authorities. In addition, former International Association of Athletics Federations president Lamine Diack of Senegal resigned as an IOC honorary member in 2015 after being cited in a French investigation of Olympic-related corruption and money laundering.

“[The corruption] is a huge problem, as there has been a decline in public trust of all large organizations, businesses, and political administrations, and the recent allegations suggest that all the changes that were made in 2000 after the Salt Lake scandal have not contained or eliminated the incidence or culture of bribing IOC members to secure their vote for a bidding city,” said IOC member Richard Peterkin of Saint Lucia.

There is also the case of member Patrick Hickey of Ireland, who was jailed for three months in Rio after being accused of taking part in a massive ticket resale scheme at the 2016 Olympics. He has stepped aside as an IOC member and as Irish Olympic Committee president until the matter is resolved. In late November, member Alex Gilady of Israel faced accusations of sexual harassment and assault, denying those that claimed rape.

“Every time another IOC member is implicated in something potentially nefarious, we lose more credibility,” Pound told BBC Sport.

In an email to this author, Pound said that “too many IOC members are in trouble,” decrying the IOC’s passivity in acting on these allegations. He also said that the problems besetting the IOC do not yet add up to a general crisis, “but the possibility cannot be discounted.”

Peterkin sees things differently. He said it is already a crisis, “but not one [the IOC] cannot overcome.”

“It is a shame to waste a good crisis,” Peterkin added, “and if the IOC makes the right decisions and changes to address the current and future problems, they could become stronger, more resilient, more inclusive, and better able to cope with new crises that will inevitably arise in the future.”

The IOC needs to consider rotating the Olympics through recent host cities, which would encourage them to maintain facilities built for the Games. As it seeks younger audiences by adding extreme sports (for instance, eSports may become Olympic), it must excise outdated sports like modern pentathlon and dramatically reduce the number of participants in all sports. It must demand that hosts employ modern construction technology to build temporary venues that can be reused elsewhere. It must dissuade cities from tying massive infrastructure projects to Games bids. It must stand behind its stated zero-tolerance policies on doping and impose bans on nations that have clearly fostered state-sponsored cheating. It must have more on-site oversight of Olympic preparations from the minute the host is chosen, having for years left upcoming hosts to their own devices. It must take immediate action against members charged with ethical improprieties. The IOC is a self-selecting club; it can and should expel members for besmirching its reputation. Ten were axed (but 20 more implicated) in the Salt Lake scandal.

Reform efforts like Agenda 2020 have mainly been ineffective attempts to stanch criticism rather than fix the problems of an organization that, not long ago, was selling an event most of the world unreservedly bought into. The wealthy IOC has become critically bankrupt in spirit and action, so caveat emptor overrules all else.